Asia-Pacific, Headlines

AFGHANISTAN: Subsidised Fuel Trail Winds Back to Pakistan

Anand Gopal*

KABUL, Sep 30 2008 (IPS) - In a teeming petrol market on the outskirts of Kabul, black market traders sell fuel to everyone from individual customers to large business groups. Although much of this petrol comes from Iran or the Central Asian countries, a good amount also hails from Pakistan, where government subsidies have made the fuel much cheaper than in Afghanistan.

Jerry cans of fuel are available everywhere in Kabul.  Credit: Anand Gopal/IPS

Jerry cans of fuel are available everywhere in Kabul. Credit: Anand Gopal/IPS

The Afghan government and private businesses generally avoid buying petrol from Pakistan because of the spiraling insecurity on the routes into Afghanistan, but still much petrol manages to get in. How it does so and where it goes illustrates the complicated world of smugglers, border patrol agents and foreign militaries.

Afghanistan, landlocked and with an underdeveloped economy, has long relied on Pakistan for durable goods and petrol. While a handful of government-subsidised petrol pumps exist, for the most part fuel prices are substantially higher here than in Pakistan, where the government subsidises fuel for local consumption.

Fuel from Pakistan comes to Afghanistan in two ways, explains Karim Momand, oil manager for Azizi Hotak, a leading petroleum company in Kabul. Pakistani petrol, particularly from Pakistan State Oil (PSO), a state-run oil company, is sold tax-exempt to fuel traders who then legally export the product to Afghanistan.

A good amount of fuel is also smuggled in to the country, since the price of a contract with the PSO is quite high and traders can make even more profit by circumventing the border customs.

Traders and middlemen then purchase this fuel in Torkham, on the Afghan side of the Afghan-Pakistan border near Peshawar. Some of this fuel is sold in the Afghan market, mostly by small vendors who make the petrol available in jerry cans on street-sides around the country.

But the majority is smuggled back into Pakistan, say fuel traders. This practice, which has been taking place between the two countries for years, has undercut the Pakistani market and led to pressures on that country's national treasury, says an official at the Afghan Chamber of Commerce.

The PSO enters into agreements with oil traders worth hundreds of thousands or millions of dollars, the official says. The agreement allows petrol middlemen to buy subsidised fuel for shipment to Afghanistan, usually from a depot in Taru Jabba, near Peshawar. The fuel is then transported through Peshawar, where the transporters are given a tax rebate from the PSO, into Afghanistan, and then smuggled back into Pakistan and sold in Peshawar markets at low prices.

"The whole system works because corrupt border patrol agents often look the other way or take a cut in the profits," says the official from the Afghan Chamber of Commerce.

"This is another case where Pakistani government policies end up hurting Pakistan," says Haroun Mir with the Afghanistan Center for Research and Policy Studies.

Large amounts of petrol destined for U.S. and North Atlantic Treaty Organisation (NATO) forces operating in Afghanistan also come in to the country through Pakistan. While the international forces purchase the majority of this fuel from Arab countries and elsewhere, only using Pakistan as a passageway to Afghanistan, IPS has learned that some Pakistani government-subsidised fuel may be going towards the U.S. war effort.

An official with the Tryco International Inc., a Kabul-based oil and logistics company, says that his company purchases fuel from PSO and supplies it to the U.S. military for its efforts in Afghanistan. "Some of this may be subsidised fuel and some sold directly to the company without subsidies," he says. The company, which won a nearly three million dollar contract in 2007 to procure and supply fuel to coalition forces, has spent millions purchasing petrol from PSO, he adds.

The Tryco, which registers sales of up to 50 million dollars per year, is PSO's "exclusive agent representative for Afghanistan," according to the source. While Islamabad generally does not comment on such partnerships, earlier this summer a senior official said NATO forces and private contractors are importing around 726,000 litres of subsidised fuel into Afghanistan every day. "Pakistan is losing around 32.5 million rupees (4.5 million dollars) daily due to such exports" and smuggling of fuel to Afghanistan, an unnamed source at the Pakistan Petroleum Ministry told the ANI news agency.

Once fuel for NATO or the American forces enter the country, the main challenge is to deliver it safely to its target without incurring attacks from the Taliban and other insurgents. Matthew Leeming, a Kabul-based fuel trader, estimates that over 50 tankers from one oil delivery company were destroyed in the last couple of months alone. The road from Kabul to Kandahar, considered one of the world's most dangerous highways, is particularly risky for fuel suppliers.

Often petrol delivery and logistics companies have to pay protection money to various tribal elders. In one route, between the capitals of Kandahar and Urozgan provinces, contractors pay millions in protection money, some of which may end up in the hands of the Taliban, Leeming says.

In addition, to protect fuel convoys the international forces and petrol companies often hire private security companies. The U.S.-based firm USPI, for example, has routinely provided security for such convoys – despite persistent criticism that it has been involved in questionable activities. In addition to accusations of drug smuggling and over-billing the U.S. government of millions of dollars, the company once had suspected ties to Din Muhammad Jorat, a warlord with a history of human rights abuses. USPI officials refute such allegations.

Whatever its route, observers say that Afghanistan and Pakistan's petrol connection signals the high degree of interconnection between the two nations. "Here in Afghanistan the government generally doesn't subsidise its fuel," says Hamed Asir of the National Union of Journalists. "But we are so intertwined with Pakistan the politics of fuel subsidies there have an effect here."

(*This is the second of a 2-part series that explores the politics of fuel subsidies in Pakistan and tracks the diesel to Afghanistan.)

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